Tesco revealed a plunge in profits yesterday following a year in which tens of thousands of customers switched to budget or high-end rivals.

Many households hit by the rising cost of living defected to Aldi and Lidl, while others switched to Waitrose, Marks & Spencer and Sainsbury’s, which have created the perception they offer better quality.

Profits at Tesco for the first half of 2013 were £1.39billion, which was down by 24.5 per cent on the same period last year.

Not being used: Tesco's trolleys aren't being snapped up as much with loyal customers defecting elsewhere

The UK’s biggest retailer is fighting back by spending £1billion on a rescue plan, which involves store makeovers, new food lines and extra staff.

Tesco revealed that its underlying sales in Britain during the first six months of 2012 were down by 0.5 per cent compared with a year ago.

Budget: Cut-price Aldi has also claimed some of the supermarket's shoppers with a new luxury line

It has also faced negative fall-out from its role in the horsemeat food fraud scandal involving its value frozen beef burgers.

The picture is very different at Aldi, which has just announced a 40 per cent surge in annual sales with an extra one million customers a week. And yesterday Sainsbury’s announced a 2 per cent rise in underlying sales.

Tesco’s management has embarked on a radical overhaul of the business, which has included scrapping plans for 100 new large stores and concentrating on smaller convenience outlets and its website.

It has sold its struggling US chain Fresh & Easy and yesterday announced a merger of its Chinese business with China’s largest grocer Vanguard.

Retail analyst at The Economist Intelligence Unit, Jon Copestake, said: ‘Consumer austerity and the rise of discounters along with greater competition from other mid-market retailers have all weighed on Tesco’s recent performance.

‘It seems that domestically the UK’s largest retailer is continuing to lose out to discounters on price and to peers such as Sainsbury’s on perceived quality.’

Phil Dorrell, director of consultants Retail Remedy, said: ‘The biggest retailer in the UK is having a truly terrible time.’

John Ibbotson, director of retail consultants Retail Vision, said: ‘With profits nose-diving in Europe and Asia, the foreign markets that once provided a perfect hedge against weak demand at home are now more hurdle than help.’

George Scott, an analyst at retail consultancy Conlumino, said there was intense price rivalry among the ‘big four’ chains and discounters Aldi and Lidl. In addition, there was ‘the growing impetus of Waitrose, which has successfully bridged the value-quality spectrum’, he added.

Underlying food sales in the UK were up by 1 per cent in the last three months compared with a year ago, clothing sales by 8.6 per cent and online grocery sales by 13 per cent. ‘We’re feeling very positive about the changes that we’ve made and consumers are reacting very well,’ he said.

It is relaunching its premium Finest range next week, while its cheap £119 Hudl tablet hit shelves last week with the aim of boosting online sales.